Sources with the exchange said the rules were posted in order to submit them to scrutiny and get suggestion from the public.

After public opinion has been registered, the rules will still have to get final approval from the legislative body and the State Council before being finalized.

"All technical and regulation preparation of the second board should be ready by the end of next month. It will be launched soon after the approval from the State Council,'' said Dai Wenhua, vice-manager of the Shenzhen Stock Exchange.

Shenzhen, a coastal city in south China's Guangdong Province, is believed by most to be the likely host for the new NASDAQ-style market.

The newly revealed draft covers regulations regarding listing, share issuing and trading on the second board.

The draft also describes the role of brokerages, recommending companies and other intermediaries.

According to the document, retail and institutional investors that have opened accounts in the Shenzhen exchange can participate in trading on the second board.

There will probably be no minimum account and trading volume requirements for investors, which has pleased small and medium-sized investors, said analysts.

The most promising candidates for the new market will be high-quality companies involved in biotechnology, telecommunications, Internet and other high-growth sectors, officials said.

Companies on the new board must also have a two-year operation record under the same management team.

Dominated by hi-tech companies, the second board market would move on a wider range than the present Shenzhen and Shanghai bourses.

Regulators would set a 20 percent daily price limit, up or down, for the second board-listed stocks, instead of the usual 10 percent of ordinary shares on the main boards.

This further highlights the importance of risk control and measures preventing speculation, said analysts.

Recommendation responsibility will be a major part of the foundation of the new board.

Related responsibility of companies recommending other companies for listing will push them to pick out the best candidates out of the numerous applicants. They will be required to supervise timely and accurate information disclosure of the listed companies for two years after the listings.

The draft has stipulated that listed companies should report results quarterly and set various circumstances for other information disclosure in an effort to ensure more transparency and guarantee standard operation of the companies to prevent interest of investors, analysts said.

"Reputation and credit worthiness of the recommending companies will affect investors' confidence in the new-born market, especially because the risk on the second board will be higher than on the main boards,'' said Ji Yuguang, vice-president of Haitong Securities, one of 30-odd brokerages that have been chosen by regulators as recommenders for the second board.

All technical and regulation preparation of the second board should be ready by the end of next month. It will be launched soon after the approval from the State Council.

(China Daily 10/20/2000)